Trump’s Tariffs Raised U.S. Prices While CUSMA Protected Most Canadian Goods, Reuters Analysis Finds

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Donald Trump’s sweeping tariff campaign dramatically raised the cost of importing goods into the United States, but its economic impact proved more uneven than the headline rates suggested. A Reuters analysis published on June 30 found that American consumers encountered noticeably higher goods prices, even as exemptions, trade agreements and shifting supply chains limited the broader damage to economic growth.

Canada occupied an unusual position in this new trade landscape. Tariffs battered industries such as steel, aluminum and automotive manufacturing, yet the Canada–United States–Mexico Agreement protected most qualifying Canadian exports. The result was neither a painless escape nor the economic catastrophe initially feared. Instead, households, importers and exposed manufacturers absorbed much of the pressure while CUSMA prevented an even wider disruption.

A Historic Tariff Increase With a Smaller-Than-Expected Impact

The average tariff collected on U.S. imports rose from approximately 2.4% in 2024 to 9.6% in 2025, reaching its highest level in roughly 80 years. That was a dramatic policy shift, but it remained considerably lower than the rates suggested by some of the administration’s announcements. Headline tariffs did not always translate directly into duties collected at the border because exemptions, product exclusions and trade-agreement preferences continued to apply.

By December 2025, approximately 57% of all goods entering the United States were still arriving duty-free. This gap between announced and applied tariffs helped explain why the immediate damage was smaller than many forecasts made during the height of the trade conflict. Imports also represent only one part of the enormous U.S. economy. A steep tax on selected goods can disrupt individual industries and household budgets without automatically producing a proportionate decline in national output.

CUSMA Became Canada’s Most Important Economic Shield

CUSMA proved to be more than a conventional free-trade agreement during the tariff confrontation. Goods meeting its rules of origin could generally continue entering the United States without being subjected to the broad tariffs placed on non-compliant Canadian products. Canadian government estimates indicated that approximately 85% of Canadian exports were entering the U.S. tariff-free by early 2026.

The protection was especially significant for goods covered by the administration’s wider emergency tariff measures. Approximately 97.5% of Canadian exports within that category qualified for CUSMA treatment and entered duty-free. Compliance, however, requires companies to document where products and components originated. For a large corporation with a dedicated customs department, that paperwork may be routine. For a smaller exporter shipping machinery, packaged food or specialized equipment, proving origin can involve additional records, supplier declarations and administrative expenses.

American Consumers Ultimately Paid Higher Prices

Federal Reserve researchers found strong evidence that the 2025 tariffs were passed into the prices paid by American households. Their baseline estimate suggested that tariffs implemented through November 2025 had raised core-goods prices by 3.1% as of February 2026. The same research estimated that tariffs added approximately 0.8% to the broader core personal consumption expenditures price index.

The increases were concentrated in categories with substantial imported content or exposure to tariffed materials. Furniture, vehicles, tires, automobile parts and household equipment were among the affected products. A family replacing a worn sofa or purchasing a new vehicle therefore encountered the policy in a more immediate way than someone examining national GDP figures. Federal Reserve researchers concluded that tariffs could explain essentially all excess core-goods inflation since January 2025 compared with pre-pandemic trends, although they also found that most of the initial pass-through appeared to be complete by early 2026.

Importers Absorbed the Tariffs Before Passing Them Along

Tariffs are formally collected from U.S. importers rather than foreign governments. Research summarized by Brookings estimated that approximately 90% of the tariff burden was passed through to American importers, while foreign exporters absorbed only about 10% by reducing their pre-tariff prices. Importing companies then faced a difficult choice: raise retail prices, accept smaller margins, negotiate with suppliers or find alternative sources.

Large retailers could delay some increases by relying on inventory purchased before tariffs took effect. Smaller businesses generally had less room to manoeuvre. A local appliance store, auto-parts distributor or furniture importer may not possess the cash reserves needed to absorb a sustained cost increase. The Budget Lab estimated that the tariff system in place during early 2026 could raise average consumer prices by roughly 0.6% in the short run, equivalent to an average purchasing-power loss of about US$800 per household under its temporary-tariff scenario.

Why the U.S. Economy Avoided a Much Larger Contraction

Higher prices did not produce an equally large decline in total U.S. economic activity. Brookings researchers estimated that the overall short-term effect of the 2025 tariffs fell within a narrow range of approximately positive 0.1% to negative 0.13% of GDP. Gains to some domestic producers and the federal revenue generated by tariffs offset part of the losses experienced by importers and consumers.

The Budget Lab nevertheless estimated that the economy could remain approximately 0.1% smaller in the long run, representing around US$30 billion in annual output measured in 2025 dollars. Its modelling also showed that the effects differed substantially across industries. Manufacturing output could expand as imported products became more expensive, but construction, agriculture, mining and other sectors could contract because of higher input costs and weaker demand. A modest national figure can therefore conceal meaningful gains and losses among different workers, businesses and regions.

Tariffs Generated Record Revenue for Washington

The U.S. government collected approximately US$264 billion in tariff revenue during calendar year 2025, more than triple the amount collected in 2024. Tariffs accounted for close to 5% of total federal receipts, compared with an average of roughly 1.6% during the previous decade. Measured against GDP, tariff revenue reached its highest share in more than a century.

That revenue helped soften the tariffs’ measured effect on the economy because money collected at the border could later be returned through spending, tax reductions or other government programs. It did not eliminate the cost, however. Tariff revenue represents money transferred from importers and consumers to the federal government, not wealth created without consequence. Subsequent legal decisions also complicated the picture by forcing refunds of some duties collected under emergency powers, demonstrating that tariff revenue can be less predictable than ordinary income or payroll taxes.

Canada Was Protected Broadly, but Several Industries Were Hit Hard

CUSMA protection did not apply equally across every sector. Steel, aluminum, copper, automobiles, auto parts, lumber and some wood products remained exposed to separate U.S. sectoral tariffs. Canadian government documents estimated that these measures covered approximately C$150.5 billion in exports. Steel and aluminum tariffs initially stood at 25% before increasing to 50% on many products, creating intense pressure for mills, fabricators and manufacturers tied to cross-border supply chains.

Statistics Canada reported that exports contracted 7.5% in the second quarter of 2025, the largest non-pandemic quarterly decline since 2009. Real GDP fell 0.4%, while 54% of manufacturers reported being affected by tariffs in April. Automobile plants experienced temporary shutdowns and production adjustments, while wholesalers and transportation businesses felt the decline in cross-border activity. These disruptions showed why an exemption covering most exports could coexist with serious hardship in concentrated industrial communities.

Canadian Trade Adjusted Rather Than Collapsing

Canadian merchandise exports to the United States declined by approximately 5.3% in 2025, falling to about C$564.6 billion. Exports of chemicals, forestry products, metals, energy and motor vehicles recorded notable declines. The American share of Canadian merchandise exports fell to roughly 72.5%, its lowest level since the early 1980s, although the United States remained Canada’s dominant customer by a wide margin.

At the same time, exports to other markets expanded. Shipments to Europe and Central Asia increased approximately 30%, while exports to the Indo-Pacific region rose 6.4%. Those gains nearly offset the decline in exports to the United States, leaving total Canadian merchandise exports down only 0.2% for the year. Diversification therefore provided a partial cushion rather than a complete replacement for U.S. demand. Geography, established infrastructure and integrated production mean that selling an auto part to Michigan remains very different from finding a new customer across an ocean.

The CUSMA Review May Matter More Than the Initial Tariff Shock

CUSMA entered into force in July 2020 and was designed to undergo a joint review in 2026. A straightforward extension would preserve the agreement for another 16 years, through 2042. A major renegotiation could instead introduce stricter origin rules, reduced tariff preferences or new sector-specific conditions. If no extension is agreed upon, annual reviews can continue until the agreement reaches its scheduled 2036 expiry date.

The Bank of Canada has warned that an unfavourable outcome would weaken the competitiveness of Canadian exports and discourage production, investment and hiring. On June 30, Reuters reported that the Trump administration was expected to decline an immediate extension, beginning a longer period of negotiation rather than instantly terminating the agreement. That distinction matters. The tariffs imposed in 2025 raised prices and damaged exposed industries, but CUSMA kept most continental trade moving. Losing or substantially weakening that protection would create a much broader economic risk.

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